House passes SECURE Act: What’s next?

The House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act (the SECURE Act) on May 23. The bill then went to the Senate where they are attempting to pass by unanimous consent. The legislation aims to provide more opportunities for Americans to increase their retirement savings and improve the portability of lifetime income options from one plan to another.

One of my top priorities as chairman of this committee is to help workers of all ages prepare for a financially secure retirement. Americans currently face a retirement income crisis, with too many people in danger of not having enough savings to maintain their standard of living and avoid sliding into poverty. The SECURE Act goes a long way in addressing this problem by making it easier for Americans to save.” —  Representative Richard Neal (D-MA), Chairman House Ways & Means

The SECURE Act is a collection of various retirement and savings provisions and enhancements that have been included in previous proposals, most recently the Retirement Enhancement Security Act, or RESA, which was brought to the Senate. Some elements of the SECURE Act also originated in previous tax reform proposals over the past few years. The Act will expand and preserve retirement savings with the broadening of various safe harbor provisions. These provisions impact defined contribution plans, tax credits and incentives to encourage small businesses to offer retirement savings plans in the workplace, permit IRA contributions after age 70½ for those still working, and increase the age by which IRA account owners must begin required distributions from age 70½ to age 72. The act will also change the time period that beneficiaries have to take a distribution of inherited retirement assets.

Since the Senate was not able to achieve passage through unanimous consent as of the date of this article, the bill will likely be pushed off until later this year when it might be picked up as part of “must-pass” legislation, i.e. spending bill or debt ceiling solution that will be advanced later this year. While the bill passage may still be likely this year, things can still change, so we will continue to monitor the situation closely.

Below is a chart listing the provisions in the most current version of the SECURE Act as it was passed by the House, and their effective dates:

Plan Provisions

Safe harbor cap on auto enrollment and escalation increased from 10-15%.

Effective for plan years beginning after December 31, 2019.

For safe harbor 401(k) plans, elimination of notice requirement for non-elective contributions and expanded amendment period.

Effective for plan years beginning after December 31, 2019.

Provide for the portability of lifetime income investments.

Effective for plan years beginning after December 31, 2019.

Long-term, part-time employees included for deferrals, but unless otherwise eligible under the plan, not subject to matching contributions or eligible for non-elective contributions.

Effective for plan years beginning after December 31, 2020.

Plan adoption deadline expanded to employer’s tax filing deadline including extensions.

Effective for adopted for taxable years beginning after December 31, 2019.

Consolidated Form 5500 reporting for similar plans.

Implemented no later than January 1, 2022 applying to returns for plan years beginning after December 31, 2021.

Lifetime income disclosures would be required to be displayed on participant statements (currently this is voluntary).

Department of Labor (DoL) must issue an interim final rule within one year after SECURE act is enacted. The DoL rule would indicate effective date.

Creates a fiduciary safe harbor for plan sponsors selecting annuity providers.

Effective upon enactment.

Open Multiple Employer Plans (open MEPs). Unrelated employers would be allowed to participate in a MEP, called a “pooled employer plan,” that would be treated as a single plan for ERISA purpose. The MEP plan would be conditioned on the plan using a “pooled plan provider” (PPP). PPPs would be responsible for performing all administrative duties necessary to ensure that the plan complies with ERISA and the Code. PPPs would be a named fiduciary, plan administrator, and subject to registration, audit, examination, and investigation by Treasury and DoL.

Effective for plan years beginning after December 31, 2020.

Startup credit for small employer plans expanded.

Effective for plans beginning after December 31, 2019.

New credit for small employers adoption auto enroll.

Effective for plan years beginning after December 31, 2019.

Closed Defined Benefit plans relief on aggregation and testing.

Effective upon enactment.

Increased Form 5500 failure to file penalties.

Returns, statements and notifications required to be filed or provided after December 31, 2019.

Plan and IRA Provisions

Withdrawals for birth or adoption expenses. This is a voluntary provision. Up to $5,000 per person, per birth or adoption could be withdrawn without withholding and could be rolled back into a plan or IRA without being subject to the 60 day rollover requirement.

Effective for distributions made after December 31, 2019.

Reduction in “stretch” distributions to beneficiaries. Distribution of inherited assets must be made within 10 years of the death of the participant/IRA account owner with exceptions for:

surviving spouse

minor child (delay 10-year distribution window until they reach the age of majority)

disabled or chronically ill beneficiary

beneficiary who is not more than 10 years younger than the participant/IRA owner

Any beneficiary eligible for life expectancy payout (listed above) may name a subsequent beneficiary in the event of their death, but subsequent beneficiaries have only 10 years to distribute the remaining inherited assets.

Applicable to deaths occurring after 2019.

IRA Provisions

IRA contributions based on non-tuition fellowship and stipend payments.

Effective for taxable years after December 31, 2019.

Post 70½ IRA contributions would be permitted as long as the account owner (or spouse in the case of a spousal IRA) has earned income.

Effective for taxable years after December 31, 2019.

Increased Required Beginning Date for required minimum distributions.

Raise RBD to age 72 for individuals attaining age 70½ after December 31, 2019.

Other Provisions

529 withdrawals for additional higher education expenses including fees, books, supplies and equipment required for apprenticeship programs.

Effective for distributions after December 31, 2018.

529 withdrawals for repayment of student loans.

Effective for distributions after December 31, 2018.

Increased filing penalties for tax returns.

Effective for return due dates after December 31, 2019.